202 economic indicators

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Economic Indicators GDP, Unemployment and Inflation

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Page 1: 202 economic indicators

Economic IndicatorsGDP, Unemployment and Inflation

Page 2: 202 economic indicators

Gross Domestic Product

•The market value of all final goods and services produced in a country in a given year.

Page 3: 202 economic indicators

•The market values of all final goods and services produced in a country within a given year.

•Market – what the good sells for

•Final – no resale or intermediate goods

•Produced in - no matter who owns company

•Given – annual figure

Page 4: 202 economic indicators

Divide into four categories•C – Consumption by households•I – Investment by businesses, incl R&D•G – Government spending•(X-M) – (Exports – Imports)

•GDP = C + I + G + (X-M)

• Change usually more interesting than actual number.

Page 5: 202 economic indicators

Mostly consumer-driven:

• http://blogs-images.forbes.com/mikepatton/files/2014/12/Table-US-GDP-Components-2011.jpg

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Write C, I, G or (X-M) and or

•Due to a tax cut, consumers decide to buy more new cars.• C up and GDP up

•Worried about an increasing budget deficit, the government decides to buy fewer military planes• G down and GDP down

•Increasing prices in the US encourage Americans to buy more foreign goods.• M up and (X-M) down thus GDP down

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Write C, I, G, or (X-M) and or •Due to a tax increase, consumers decrease

purchases on vacation travel• C down and GDP down

•Due to increased incomes, Europeans buy more US goods• X up making (X-M) up thus GDP up

•Businesses are optimistic about the future and increase the construction of new factories• I up and GDP up

Page 8: 202 economic indicators

Some economic activity is left out

•Informal Work▫(Shadow Economy)

•Subsistence Work

•Care Work

Page 9: 202 economic indicators

If we measure it, it must matter•GDP measures economic activity, not

well-being…. What is the effect of•Cutting down all of our forest’s and

selling the wood▫Increase C and X thus increasing GDP

•Doubling government spending because of war

Increase G thus increasing GDPEffect of BP Oil Spill, link

Page 10: 202 economic indicators

Measures of Economic Well-being•SPI ted talk

Page 11: 202 economic indicators

Measures of Economic Well Being•Green GDP – account for environmental

damage

•Video Example

•This would not beIncluded, lighting

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Page 13: 202 economic indicators

Unemployment Rate

Page 14: 202 economic indicators

In Civilian Labor Force ifOver 16Not in militaryHave a jobActively looking for work

Not in labor force if,

-Retired, -Discouraged

Workers those who have given up –looking, or

-Full-time student

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• Unemployed if▫ Over 16▫ Actively looking for work in last 4 weeks▫ Available to work▫ And, do not have a job

Not Unemployed if Given up looking U1-U6 definition

s

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Unemployment rate tends to undercount unemployment because of

▫Underemployed▫Reduced Hours▫Discouraged Job Seekers

Source: MSN

Page 17: 202 economic indicators

Types of Unemployment•Cyclical Unemployment

▫Due to recessions•Seasonal Unemployment

▫Due to seasonal changes, teachers & lifeguards

•Structural Unemployment▫Due to skills becoming obsolete

•Frictional Unemployment▫Due to transition to better or equal job

Page 18: 202 economic indicators

What happens to the UR, if• In May, there is a surge of college graduates

looking for work• A number of workers give up looking for work• Most construction workers take off Nov-Feb

because of weather conditions• After a particularly touching Dr Phil episode

people unhappy with their bosses quit to find a better job

• With the invention of solar cars, gas stations all over the country go out of business

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Page 20: 202 economic indicators

A dollar doesn’t buy what it used to•In Zimbabwe, video

▫Hyperinflation Prices changing by the hour

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How it is measured•Percentage change in the CPI•Consumer Price Index

•Cost of a constant market basket of goods each time period.

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Find the Cost of the market basket•Done every year

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How it is done•Calculate CPI

Basket Cost 2012/Basket cost 1984 = CPI 2012 with base year of 1984

•Calculate Inflation with percent change in CPI▫CPI 2012 – CPI 1984------------------------------ * 100 CPI 1984

Page 24: 202 economic indicators

Problems with measureInaccuracy Over or Under

Estimate InflationMarket basket changes every ten years

Over

Quality Improvements OverWe change our point of purchase

Over

We look for substitutes Over

Page 25: 202 economic indicators

Using the inflation rate•COLA – Cost of Living Adjustment

•Over time dollar comparisons▫Real vs Nominal

Nominal – in current dollars Real - inflation adjusted dollars

Page 26: 202 economic indicators

Go from Nominal to Real Dollars•Nominal is the change on the price tag or

paycheck

•Real dollars accounts for inflation

Page 27: 202 economic indicators

Real vs Nominal Stamp Prices

Page 28: 202 economic indicators

Real vs Nominal Gallon Gas

Page 29: 202 economic indicators

Real vs Nominal Minimum Wage

Page 30: 202 economic indicators

Costs of (unexpected) inflation•Hurts Savers•Hurts Retirees and those on fixed income•Hurts Lenders

Page 31: 202 economic indicators

Causes of Inflation•Too much money in circulation relative to

amount of goods•Inflation, Bubbles and Tulips•Demand-pull•Cost-push•Wage-price spiral

Page 32: 202 economic indicators

Misery Index

•Unemployment rate plus inflation rate•http://www.miseryindex.us/

indexbyyear.aspx?type=IR

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Additional Indicators•Consumer Spending (approx 70%)

•Manufacturing

•Stock Market

•International Markets current/capital

Page 34: 202 economic indicators

Consumer Spending•Consumer Confidence & Consumer

Sentiment•Retail Sales•Durable Goods orders

▫Goods that last more than 3 years•Housing:

▫New Home sales, Construction•Personal Income & Spending

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Page 36: 202 economic indicators

Manufacturing•PPI

▫Predicts CPI changes•Factory Orders

▫Leading indicator•Wholesale trade

▫Value of business inventories▫I/S ratio lagging indicator

Page 37: 202 economic indicators
Page 38: 202 economic indicators

Stock Markets•S&P 500

▫75% of equities traded tracked by Standard & Poor

•Dow Jones Industrial Average▫Tracks 30 of the largest companies on the

stock market. Picked by the WSJ

•NASDAQ Composite Index▫Electronic stock market, US and non-US tech

companies

Page 39: 202 economic indicators
Page 40: 202 economic indicators

International•Trade Balance

•Current account•Capital account

Page 41: 202 economic indicators

Timing of indicatorsLeading Coincident Lagging• Manufacturing

Hours• New unemp claims• Consumers new

orders• ISM index new

orders• MFR new orders,

( excl defense and aircrafts)

• Bldg permits• S&P 500• Leading Credit

Index• 10yr Int rate

spread• Consumer

expectations

• GDP • Income• Employment• Sales-Inventory

ratios• Labor costs• Prime rate